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Superfunds February 2015
cannot use reliance on the advice of management
or other experts as a substitute for their own
attention. In effect, trustees cannot outsource
those critical areas where the trustees deliver on
their performance responsibilities.
To illustrate, it is generally considered that
investing the fund’s assets is a core responsibility
of the trustees. While asset and other consultants
will be involved in working with trustees, the
trustees themselves need to understand and be
able to confidently question the various experts to
develop a robust investment strategy and out of
this, agree various mandates, assessment criteria
and delegations. My observation is that few large
funds have investment professionals on their
boards and, therefore, risk outsourcing too much
responsibility to non-trustee experts. Similarly,
trustee boards have little insurance or technology
expertise.
In addition to technical skills, effective boards
also need to work well as a team. One of the
key attributes of an effective board is that there
is a high level of trust between board members.
Boards make decisions as a collective and, hence,
directors need to be able to work as a team.
Boards need to avoid consensus-driven ‘group
think’ but also need to have robust discussions
without getting personal.
To achieve a high-performing board, accepted
best practice is for the board to develop a skills
matrix that matches the desired skills against the
individual trustees. The criteria needs to be set
such that, on key areas of performance including
investment, insurance and administration, trustees
can appropriately interrogate external experts
and senior management. Once the desired skills
are agreed, the assessment process needs to
objectively assess existing trustees against agreed
criteria and identify gaps in required skills. Some
of these gaps may be filled through targeted
training, but others may require the appointment
of a new trustee.
The assessment process has its own challenges
for trustees. There is an interesting phenomena
called the Dunning-Kruger effect. Basically, people
tend to overstate skills that they don’t have
and underestimate skills that they do have. An
explanation is that people that lack a skill don’t
have the ability to assess the extent to which they
have it or need it. The effect of a combination of
the Dunning-Kruger effect and the desire to not
create a confrontational situation on the board is
that there could be a bias that overestimates the
board’s skill level in areas where they do not have
expertise.
While I do not think that the current trustee
representational model is broken, I do believe
that a move to independent trustees will act as
a trigger for a fundamental review of board skill
levels. From my observation, the new independent
trustees appointed to both for-profit and not-for-
profit funds have been of a very high standard
and have introduced a new discipline to these
trustee boards, which will be of benefit to the
members.
Do you have something to say about
this article? Let us know. Email
superfunds@superannuation.asn.au
My observation is
that few large funds
have investment
professionals on
their boards and,
therefore, risk
outsourcing too
much responsibility
to non-trustee
experts